Impact of managed care on the economics of laboratory operation in an academic medical center

Background. - Throughout the 1980s, the number of laboratory tests performed in the United States grew at an annual rate of over 10%, and laboratory costs accounted for approximately 10% of overall health care expenditures. Recently, the influence of capitation, emphasis on cost-effectiveness, and changing roles among specialists and primary care physicians have begun to affect the growth of laboratory testing. We examined the impact of managed care on the economics of the clinical chemistry laboratory at Vanderbilt University Medical Center, Nashville, Tenn, to define the relative position of the clinical laboratory in the managed care environment of an academic medical center. Methods. - The following data were prospectively collected between fiscal years 1984/1985 and 1995/1996: number of inpatients and outpatients, average length of stay, number of laboratory tests, total laboratory revenue, direct costs (consisting of salary and consumable costs), and number of full-time equivalent (FTE) personnel. Using these data, we derived the following parameters: revenue and direct cost per patient, and revenue and productivity per FTE. Results. - Between 1984/1985 and 1995/1996 the number of inpatients and outpatients increased 33% and 155%, respectively. Laboratory utilization, expressed as tests per patient, increased from 17 to 22 for inpatients between 1984/1985 and 1991/1992, and then sharply declined to 14.5 tests by 1995/1996, a 34% decrease compared with the 1991/1992 level. Laboratory utilization for outpatients increased from 0.23 in 1984/1985 to 0.45 tests in 1991/1992, decreased to 0.38 in 1993/1994, but then rose again to 0.43 in 1995/1996. Total revenue more than doubled between 1984/1985 and 1991/1992, mostly owing to increased inpatient revenue. Since 1992/1993, in-patient revenue has steadily declined, leading to a decrease in total revenue, which was partially offset by a continuous increase in outpatient revenue. In 1995/1996, outpatient revenue accounted for 32.1% of total revenue, compared with 7.7% in 1984/1985. Direct test cost per patient increased approximately 20% between 1984/1985 and 1991/1992, followed by a decline below the 1984/1985 level. The number of FTEs increased in parallel to the rising test volume through 1991/1992 and subsequently was reduced in response to the decrease in test volume and productivity. In 1995/1996, a 22.7% reduction in staff was imposed despite an upward trend in test volume, resulting in a sharp increase in revenue and productivity per FTE. The staff reduction did not decrease direct laboratory costs, which have remained constant since 1992/1993. Conclusions. - After three decades of continued growth, managed care has caused a sharp reversal in the upward trend in the number of laboratory tests, the number of tests per inpatient, test costs per patient, laboratory revenue, and productivity. A recent staff reduction significantly increased revenue and productivity per FTE, but showed no effect on direct laboratory costs.